If you take a glance at the chart of Rite Aid (NYSE:RAD) stock, it is mostly downhill — going from $15 to $6.60. But this is nothing new. Keep in mind that, during the past 15 years, the RAD stock price has seen an average decline of nearly 16% annually!
Okay then, might there be a contrarian play here? Or should investors just throw in the towel? Is there really no hope here?
Well, with RAD stock in single digits — and the sentiment at awful levels — there does seem like there could be value for a speculative play. Let’s face it, the company has some valuable assets and advantages, such as:
- Rite Aid has a well-known brand that’s been around since the 1960s.
- The company has about 2,500 stores across 19 states, making it the third largest pharmacy chain in the U.S.
- RAD serves 8.2 million customers per week and has a wellness+loyalty program of over 13 million members.
- The company has its own full service PBM, called EnvisionRxOptions (it aggregates roughly 20 million lives across all businesses).
Not too bad, right? I agree. But hey, is all this still enough? Note that the company has some serious challenges.
For example, RAD does not have much scale or breadth to be a next-generation pharmacy business. The debt load is $6.4 billion and the market cap is a mere $363 million. In other words, RAD lacks the resources to become something like CVS (NYSE:CVS), which has a growing base of clinics as well as a massive insurance business.
Of course, RAD stock also suffers from the secular trend towards e-commerce. The fact is that online platforms from companies like Amazon.com (NASDAQ:AMZN) and Walmart (NYSE:WMT) are eating up market share. In fact, the real fear is that RAD may ultimately become the next Sears (OTCMKTS:SHLDQ).
Future Catalysts for RAD Stock
Now there are some potential catalysts for RAD stock.
First of all, the company recently brought in a new CEO, Heyward Donigan, who has worked in the healthcare industry for over 30 years. Before coming on board RAD, she was the CEO of Sapphire Digital, an e-commerce site that analyzes health plans. She has also held executive positions at companies like ValueOptions (a behavioral health improvement company), Premera Blue Cross and Cigna Healthcare (NYSE:CI). All in all, Donigan has broad experience in both traditional and digital healthcare — which seems to be the right skillsets for RAD.
Next, the company has entered a strategic agreement with Adobe (NASDAQ:ADBE) to create more personalized digital experiences, such as with content creation, marketing, analytics and commerce. The goal is to develop a seamless omni-channel platform.
Although, perhaps the most important deal is with AMZN, which involves using Rite Aid stores as pick-up points for packages. By the end of this year, the expectation is to have more than 1,500 Amazon Counter locations.
This is likely to help drive up traffic. RAD’s demographics generally skew older compared to Amazon’s. What’s more, a similar type of deal with Kohl’s (NYSE:KSS) resulted in a 9% increase in foot traffic and an 8% jump in revenues.
But the RAD/AMZN arrangement may just be a warmup. If there is traction, it seems reasonable for partnering on digital integration. And yes, AMZN may just ultimately buy out the company to quickly rollout a pharmacy footprint.
Bottom Line on the RAD Stock Price
Again, RAD stock has some deep issues, which will take time to deal with. But at the same time, the company still has value — which the AMZN deal validates — and management is making smart movies with its digital strategy. So as a speculative play, RAD stock does look interesting right now.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.